For the viewer watching us right now, that life changing moment, that moment when you
had that connection with Michael Lewis, the author of Liar's Poker and The Big Short,
how did that change your life?
And what was the genesis of that relationship?
So he had contacted Meredith Whitney sometime in 2008.
And he had asked Meredith, "Hey, Meredith, who are the people that I need to be talking
to that understand this crisis?"
Well, Meredith, obviously, is very tight with Steve, and Vinny, and me.
But more Steve and Vinny at the time, they worked together.
So next thing you know, we get a phone call, or Steve gets a phone call from Michael Lewis.
And Steve was probably like, wow, yeah, sure.
Come on in, what are you working on?
Then we meet Michael.
I mean, he's looking at this before Lehman went down, he's poking around.
Oh, he's poking around.
Good sniffer.
You know that, because his history at Salamon's.
You know, Liar's Poker kind of was the first book written about cynical view of Wall Street.
And so, believe me, his antennas were up, and he knew something was wrong.
And by that time, things had already started to somewhat decay, or I should say very much
decay at that point.
So his first iteration was coming in and talking to us, and other people you found out about
later, who he interviewed in the article and in the book, about what was happening, how
we thought about things, why we were doing the things that we were doing.
So it was an ongoing collaboration in terms of getting him information, answering his
questions.
And so he wrote an article in the fall of 2008.
And then next thing you know, I seen at 14, 15 months later, started to publish the book
in March 2010 called The Big Short.
How much time did you spend with him during the writing process?
I think a couple months.
I think off and on all of us were-- he would call or email, like, hey, who's this person?
Hey, what is this bond mean?
And he's amazing.
He's an amazing, not just interviewer and writer, he asked the most pertinent questions.
There's no waste of time with him.
He truly understands, but he picks up so much of human nature.
He likes characters as much as he does fact.
So I'm not saying I'm a character.
I mean, Steve's a true character, right?
Steve's a bigger-than-life, larger-than-life personality, and I think that's what attracted
Michael, at least to our team, was certainly Steve.
And so fast forward from The Big Short in 2010, six weeks later the flash crash happens.
And Michael has stated this publicly.
I called him that day, and I said-- I was obviously sweating and in a panic, and whatever.
It was probably that day or the next day.
And I said, I have your next book.
And he's like, "Well, no one really tells me what to write, but what do you mean my
next book?"
I go, you've got to do something on this flash trading.
I said, what I just saw happen and all these bids being pulled.
I had just met recently within the last year, in 2009, Brad Katsuyama and Ronan Ryan, who
have now started IEX.
You know, the investors exchange.
Katsuyama, yes, yes.
And so I said, Michael, when you're ready, you let me know.
Well, the next thing you know, he meets the Russian coder from Goldman Sachs that was
accused of stealing code.
And he calls me back, maybe a couple of months later and says, "I really would like to meet
Brad and Ronan, and understand this high frequency trading and what it means."
And so that made me incense, not that Michael called me.
I'm saying just now uncovering the high frequency trading.
Because I learned at the same time Michael was, more and more about how this process
works of trading.
So Michael and I obviously worked together.
He worked more with what Brad and Ronan on that, but I worked with him during that period
also.
So to cross over from The Big Short right into Flash Boys was just surreal.
It was almost as if it just went, it just kept going.
Because it never ended.
There was never a separation for me between The Big Short and Flash Boys.
So I still talk to Michael from time to time.
I read all of his stuff, obviously.
I think he's a brilliant writer.
He might have sold a few more books than you have at this point, although 12 different
languages, I don't know-- [INTERPOSING VOICES]
[LAUGHING] But no, it's been a great on and off relationship
with a sense of I talk to him every so often.
But I have no idea what he is working on right now.
And what's the one story that you appreciate the most, that was left out of the book?
I guess there was some changes.
Well, the book pretty much captured a lot of the stories.
The movie probably missed a couple things.
But the book itself was pretty accurate.
I think the one thing that people don't appreciate or understand is that the vantage point that
we had, we were an equity long short fund, right?
And we had longs in the books and shorts in the book.
And this was really Steve compiling the portfolio.
And we were able to clearly see, in real time, what fixed income was doing to these positions.
So we had longs, we had shorts, and then we were short the bond, so to speak, long credit
protection on the bonds themselves.
Oh, this is fascinating.
So you've got the equity.
Yep.
And you're looking at CDS versus the credit default swaps.
So the cost of credit default protection-- On the companies that were actually short.
On the companies versus the equity.
Exactly.
That's a great relationship to watch.
A lot of people watching us right now aren't familiar with that.
So that's where we're getting back earlier.
Oftentimes, the credit will lead the equities, is that what you saw?
Yes, credit leads equities in that sector, always.
If you're making mortgages or auto, whatever loans you're making, credit will always lead,
because eventually it backs up on to your balance sheet.
So in other words, if an investor's watching us right now, they own a stock, XYZ, and the
stock's like $8, but meanwhile, they have all these bonds.
And the company has all these bonds.
The bond prices might actually be moving down, while the equity is moving higher or sideways.
Yes.
And so you get a leading indicator by watching the bonds.
Rarely is there a disconnect.
Sometimes there is, but rarely.
In this particular case, it's almost redundant in the sense of you're buying credit protection
on companies who are producing loans that are being sold into the marketplace, and also
sitting on their balance sheet.
And so I think the one thing I would say that wasn't really reflected, or maybe it was,
maybe it wasn't, was the amount of work that went into the equity side of the equation,
that allowed us to cross over and see what was happening in fixed income.
So when our returns, which were obviously substantial in 2007 and 2008, a lot of it--
I'm not saying it was a 1/3, a 1/3, a 1/3, but we made money being long certain stocks.
We made money being short certain stocks.
We would be long on the mortgage rates, right?
Because you know the Fed's going to have to cut rates precipitously.
So go long mortgage rates, or go long rates of some kind.
So it was a blend, but I think having a viewpoint of equity and credit at the same time was
helpful.
And we were, I was, probably, one of the few traders at the time that could speak the language
and talk to both the equity desk, and hang up and call the vix of the same firm.
Not many people can do that.
Deutsche Bank or Lehman.
I used to call you and talk to you guys, and I would talk to your equities trader who was
bidding for Countrywide.
I'm like, why would you bid on Countrywide Financial here when I'm watching their bonds
right now trade down?
So you and I used to have those conversations.
So that disconnect, I was probably rare.
I got lucky to be in the seat that I was in, but we took full advantage.
And most people don't know, but, like, when you're on at a bank and you've got an equity
floor and a fixed income floor, equity versus credit, these two groups don't even like each
other.
Right.
And so they don't communicate.
You know, we always used to say, when fixed income has a great year, they get paid great
equities, OK?
When equities has a great year and fixed income doesn't do well, nobody gets paid.
That's right.
Because the balance sheet is being absorbed in the fixed income side.
So yes, fixed income always frowns upon the equity guys as the dumb people in the room.
And they're smarter, you're smarter.
I won't ask you what your viewpoint is on that.
But yes, that's always been the case at the banks, for sure.
So bring it back to modern day and the road ahead.
You're looking at the global picture.
We're looking at the US picture, looking at Fed policy.
What most interests you today about the US economy, in terms of economic indicators,
changes in the economy, something that trends either disturb you or trends that inspire
you?
I know you've done an incredible amount of work in the cannabis space.
Right.
But that's different big trends.
Sure.
A bullish trend, a bullish thesis, and maybe a more bearish thesis.
Give us your bullish thesis.
On a sector specific?
Yeah.
You want me to talk about cannabis?
Yeah.
So that actually dovetails into what my bearish thesis is within the economy.
Things are fine, but they're somewhat stagnant, obviously.
And we've already seen what can happen when you try to raise rates and how quickly things
can slow down, how much leverage is really in the system.
Cannabis is one of these sectors, and I would throw sports gambling into the same sector,
two kind of 10th Amendment type businesses that have the ability to generate a lot of
tax revenues for local economies, and the government for that matter, if it's done correctly.
So cannabis is interesting, from the jobs that it can create, the wellness benefits
of it, the politics of it.
Obviously, 94% of people approve medical cannabis, and 60 something percent approve recreational.
So it has-- So let's get in the politics real quick.
Yeah.
Canada is ahead of the US.
Right, in October last year they allowed recreational marijuana.
OK.
So at the Bear Traps Report, what we do is we'll take clients around the Hill, around
Washington, and kind of get into this.
And it's important that investors realize that you've got Canadian companies that are
much more advanced because of the banking relationship.
Whereas, get into where the Canadian banks are in cannabis versus US banks.
Sure.
So I wouldn't say not just the Canadian banks themselves, the Canadian growers, the Canadian
cannabis companies are in a better position because they have access to the banking system
in Canada.
Because they're listing on our exchanges, the NASDAQ and New York Stock Exchange.
They have the ability to raise capital and can be owned by US institutions.
It's as simple as that.
The US names trade on the bulletin board of the United States.
And most of them trade on the CSC up in Canada.
So the smaller exchange of the two versus the TSX.
You can't be listed on the TSX.
Toronto Stock Exchange.
Toronto Stock Exchange and on assets in the US for cannabis, but you can be on the CSC
and on assets.
So you have US companies that are listing in Canada, Canadian companies listing in the
US.
And you have this weird, right?
That's a weird situation.
And so all of a sudden, throw hemp into the equation, CBD into the equation, which was
the step-sister of the cannabis plant a weird way because it was kind of already sold on
the marketplace, and people just aren't that familiar with it.
All of a sudden, the amount of investment going into hemp, because why?
Because banks feel like they can touch that.
US banks feel like, oh, I'm much more comfortable lending into the hemp market, to the CBD market,
because the Farm Bill passed.
So in the United States, the financing/banking arm of the hemp space is ahead of the cannabis
space.
Correct, way ahead.